5/03/2004 @ 4:05PM

AMD Sells Without Dells

For at least ten years, executives at
Dell
have regularly been asked about using
Advanced Micro Devices
processors in their company’s systems. Conventional wisdom is that AMD, a perennial second fiddle to
Intel
, could never reach its full potential without Dell as a customer, and that AMD’s typically lower prices would compel Dell to use AMD’s chips.

What bunk.

Advanced Micro Devices
AMD
may be stronger than it has ever been. According to data from Current Analysis, a research firm based in La Jolla, Calif., AMD accounted for 52% of all retail desktop-PC sales for the week ended April 24, compared with Intel’s 47%. Toni Duboise, who conducted the study, says it’s the first time she can remember that AMD systems have surpassed Intel in retail.

Dell
, the world’s largest maker of personal computers, continues to have the lowest costs and highest margins in the industry, despite being the only PC company to use Intel
processors exclusively. Dell, which has been swapping the number-one PC position with
Hewlett-Packard
for the past few quarters, has a 16.5% share of the worldwide PC market.

For years, Dell has said that it continues to evaluate AMD’s products but has no compelling reason to switch from its all-Intel lineup.

“AMD is doing pretty well considering they don’t have an alliance with Dell,” says Duboise. She notes that Intel still dominates the notebook-PC sector, with 81% of retail sales for the week ending April 24, compared to 17% for AMD.

More importantly than the strides made in retail sales of desktops is that AMD has forged important partnerships with HP and
Sun Microsystems
. AMD will collaborate with those partners on marketing, and to develop technologies for Sun’s and HP’s server product lines. AMD is also working with
Cray
, which is using AMD’s 64-bit chips to build supercomputers for federally-funded laboratories.

Those three alliances–and others with server companies–are crucial for AMD not only from a revenue perspective, but from a credibility standpoint. That is, its processors are reliable and powerful enough for some of world’s biggest server companies. For its part,
Microsoft
has been working more closely with AMD over the past few years to make sure its desktop and server software works smoothly with AMD’s chips.

Throughout the 1990s, AMD’s strategy was to offer chips as good as those from Intel, but at a lower price. Yet even low prices couldn’t make up for generous marketing incentives Intel offers its PC customers under the “Intel Inside” program. Today, AMD is making real advances in computing, particularly with the 64-bit Athlon chip and the server chip called Opteron.

All that said, AMD would surely love to snag some of Dell’s business–Dell sells more than 10 million systems every year–but that doesn’t seem as crucial to AMD’s outlook or credibility. Dell executives are no doubt very tired of answering the AMD question; in fact, all must have been trained to deliver the same rote response for the past decade.

Will Dell eventually have AMD systems in its lineup? Probably. Dell’s long-standing business model is to wait on the sidelines while a mass market develops, then jump in and drive down prices–and, often, its competitors’ margins.